Connect with us

Business

‘Smart Airlines Saving Billions Of Dollars From Oil Price Hedging’

Published

on

Commodity price hedging is a popular trading strategy frequently used by oil and gas producers and heavy consumers of energy commodities, such as airlines, to protect themselves against market fluctuations.
During times of falling crude prices, oil producers normally use a short hedge to lock in oil prices if they believe prices are likely to go even lower in the future, while heavy consumers like airlines do the exact opposite, hedge against rising oil prices, which could quickly eat into their profits.
Nearly all of an airline’s costs are somewhat predictable, except one: the short-term costs of fuel. Fuel is typically the biggest line item in an airline’s expense book and can account for nearly a third of total operating costs.
Two years ago, many large carriers ditched their oil hedges after suffering massive losses due to persistently low oil prices. But with oil prices constantly taking out multi-year highs, they have now been forced to reverse course and are hedging aggressively, with brokers reporting the busiest spell of consumer hedging in years.
And, there is growing evidence that fuel hedges are working as they should this time around.
Hedging is paying off
Southwest Airlines (NYSE:LUV) and Alaska Airlines (NYSE:ALK) are the only major United States carriers that have consistently hedged the cost of jet fuel.
Southwest is the only large United State airline that is also a low-cost carrier, and fuel accounts for a third of its operating costs. The airline began hedging its fuel costs in the early 1990s after crude prices spiked during the first Gulf War and has religiously hedged through thick and thin.
Southwest aims to hedge at least 50 per cent of Southwest’s fuel costs each year and exclusively use call options and call spreads. Company’s treasurer, Chris Monroe, and his team trade crude-oil derivatives as a proxy for jet fuel. They deal with some of Wall Street’s shrewdest commodity-trading desks, including Goldman Sachs, JP Morgan, and seven more traders.
Southwest lost money on its hedges between 2015 and 2017, but this year oil hedges are paying off big-time for the Texas-based carrier.
According to The Financial Times, a crack team of four fuel traders at Southwest Airlines has managed to save the company a whopping $1.2 billion this year through smart hedging. Orchestrated by the company’s treasurer, Chris Monroe, and his team, Southwest hedges have slashed its fuel costs by 70 cents to between $3.30 and $3.40 a gallon this quarter, the carrier disclosed in a recent trading update. Southwest has pegged the fair market value of its fuel-derivative contracts for this year at $1.2 billion.
While oil prices have climbed 40 per cent in the year-to-date, middle distillates have seen an even bigger surge:  jet fuel recently traded as high as ~$320/b in New York  ($7.61/gallon), a massive ~$200+ premium to crude feedstock prices.
The jet fuel premium is ~10x larger than any premium seen in the past 30 years. Southwest’s hedges must have shielded the company from some major price shocks.
“Our fuel hedge is providing excellent protection against rising energy prices and significantly offsets the market price increase in jet fuel in first quarter 2022,” Southwest CFO Tammy Romo said on the carrier’s first-quarter earnings call.
Southwest is just one of many companies looking to protect themselves from high oil prices. Over the past few months, there has been a renewed appetite from many airlines as well as an influx of first-timers, including Walt Disney (NYSE:DIS), as well as trucking and manufacturing firms.
“We’re also very fortunate that for the next 12 months, we’re very well hedged on fuel. I would ascribe that more to dumb luck than supremely intelligent management. But nevertheless, we have 80% of our fuel purchased forward out to March 2023 at less than $70 per barrel,” Ryanair Holdings Plc (NASDAQ:RYAAY) CEO Michael O’Leary revealed during the company’s latest earnings call.
To be sure, hedging in the current market can be expensive, thanks to the red-hot demand for hedging products. Those higher hedging costs have been accentuated by a lack of liquidity in recent months, making it harder to find counterparties and agree on prices. But with oil prices unlikely to come down any time soon, heavy oil users are left with little choice but to hedge or risk paying billions more in extra fuel costs.

By: Alex Kimani
Kimani reports for Oilprice.com

Continue Reading

Business

NPA Assures On Staff Welfare 

Published

on

The Managing Director, Nigerian Ports Authority (NPA), Dr. Abubakar Dantsoho, has said the management will continue to accompany its port infrastructure  and equipment  modernization drive  with the development of the welfare of its personnel.
Dantsoho made the disclosure recently while responding to the commendation by the Maritime Workers Union (MWUN) and the senior Staff Association of Statutory Corporations and Government-Owned Companies (SSASGOC) on the  clearing  of the age-long problem of employee stagnation, when the union paid him a courtesy visit at the Authority’s headquarters in Lagos.
A Statement by NPA’s General Manager Corporate & Strategic Communications, Mr. Ikechukwu Onyemekara, quoted Dantsoho as saying,  “our Port infrastructure and equipment modernization drive will go hand-in-hand with continuous staff welfare improvement”.
The NPA MD disclosed that human capital development constitutes the key strategy for creating and sustaining superior performance under his watch, adding that “talent development constitutes a critical success factor for the actualization of the big hairy audacious goals we have set for ourselves especially in the area of Port competitiveness.
“The only way we can meet and indeed exceed stakeholders’ expectations is to deepen the competencies of our human resources assets and boosting their morale.”
Speaking further, Dantsoho commended the Honourable Minister of Marine & Blue Economy, Adegboyega Oyetola, for approving the strategic proposal of the Dantsoho-led Management team that solved the over a decade-long problem of lack of promotion that had fuelled industrial disharmony.
“I must specially appreciate our amiable Minister for graciously approving the multi-pronged stratagem we deployed that cleared all outstanding cases of employee stagnation by conducting examinations in one fell swoop and instituted timelines to forestall a recurrence of such anomaly”, he sad.
Speaking on behalf of the joint maritime labour unions, the President  of Senior Staff Association of Statutory Corporations & Government-Owned Companies (SSASCGOC), Comrade Bodunde stated, “In addition to clearance of the backlog of stagnated promotions, we also wish to express our appreciation for the increase in productivity bonuses, provision of end-of-year welfare packages for staff, and the revision of the Financial Guide to the Condition of Service, which now addresses our members’ concerns about inflationary pressures.”
Nkpemenyie Mcdominic, Lagos
Continue Reading

Business

ANLCA Chieftain Emerges FELCBA’s VP

Published

on

National Secretary of the Association of Nigerian Licensed Customs Agents (ANLCA), Elder Olumide Fakanlu, has been elected Vice President of the Federation of ECOWAS Licensed Customs Brokers Association (FELCBA).
The election took place during the FELCBA Congress, held from Tuesday, June 17th to Thursday, June 19th, 2025, in Freetown, Sierra Leone.
Fakanlu’s emergence as Vice President marks a significant achievement for Nigeria within the regional customs brokerage community.
Apart from Fakanlu, Secretary of the Seme Chapter of ANLCA, Austin Nwosu, was also elected, securing the role of Secretary of Relations with Institutions.
The Nigerian delegation played an active role in the congress, with Michael Ebeatu nominated as a member of the electoral officer team, ensuring a fair and transparent election process.
The three-day congress concluded with delegates undertaking a visit to the Sierra Leone Port, offering insights into the host nation’s maritime operations, followed by a recreational trip to the Tokeh Beach.
The newly elected executives are expected to lead FELCBA in its efforts to harmonize customs brokerage practices, promote trade facilitation, and advocate for the interests of licensed customs brokers across the ECOWAS sub-region.
Nkpemenyie Mcdominic, Lagos
Continue Reading

Business

NSC, Police Boost Partnership On Port Enforcement 

Published

on

In a bid to enhance more enforcement in the nation’s Port, the Nigerian Shippers’ Council (NSC) has reaffirmed its commitment to stronger inter-agency collaboration with the Nigeria Police Force (NPF).
The Council said the collaboration is aimed at enhancing stronger enforcement, compliance and improve operational efficiency across Nigeria’s ports.
Executive Secretary/Chief Executive Officer of  NSC, Dr. Pius Akutah, made this known during a visit to the  Inspector-General of Police, Dr. Kayode Adeolu Egbetokun, at the Force Headquarters, Abuja.
The visit, which he said, focused on strengthening institutional synergy, comes in the wake of growing responsibilities for the NSC under the newly created Ministry of Marine and Blue Economy.
Akutah emphasized the critical role of security agencies in supporting port operations and ensuring regulatory compliance.
He called for the posting of police officers to assist the Council’s monitoring and enforcement teams at key port locations including Lagos, Warri, Onne, Port Harcourt, and Calabar.
“The posting will complement the activities of our revived task teams and enhance our ability to enforce standards across the maritime logistics chain”, he said.
Earlier, the Inspector-General of Police, Dr. Egbetokun, assured the Council of the Force’s readiness to continue supporting the growth of the maritime sector.
The IGP acknowledged that compliance enforcement is essential to the successful implementation of Nigeria’s Blue Economy objectives.
“The NSC and NPF are expected to deepen collaboration in the months ahead, with a shared focus on building a secure, efficient, and competitive port environment”, to the IGP emphasized.
Chinedu Wosu
Continue Reading

Trending